Former HealthSouth CEO indicted

Feds want Scrushy to forfeit $278 million in assets

By

MattAndrejczak

WASHINGTON (CBS.MW) -- Richard Scrushy, HealthSouth's ousted chairman and chief executive, was indicted Tuesday on charges of orchestrating one of the biggest accounting frauds in U.S. corporate history from 1996 to 2003.

The 85-count indictment seeks forfeiture of $278 million in property -- including several residences, boats, aircraft and luxury automobiles -- that the government alleges were obtained with bonuses and stock sales tied to the fraud.

The federal criminal grand jury indictment, unsealed in Birmingham, Ala., accuses Scrushy of securities fraud, conspiracy, wire fraud, mail fraud and money laundering as part of a wide-ranging scheme to defraud the government and deceive regulators about HealthSouth's financial condition.

It also accuses him of making false statements to investors and falsely certifying the company's financial statements with the Securities and Exchange Commission.

"As alleged, instead of telling the public the truth, Richard Scrushy and his accomplices lied -- they cooked HealthSouth's books and Scrushy personally vouched for false financial statements with the SEC to cover up their scheme," said Justice Department criminal chief Christopher Wray.

In federal court in Birmingham, Scrushy pleaded not guilty to the charges.

"I am deeply disappointed to have my innocence questioned and contested," he said on his Web site. "The truth will emerge as I am able to confront my accusers and prove my innocence before a jury of my peers and the watchful eyes of our public."

The Securities and Exchange Commission in March charged HealthSouth and Scrushy with inflating the company's profits.

The criminal charges against Scrushy carry a maximum jail sentence of 650 years and $36 million in fines, plus forfeiture of personal assets.

Scrushy, 51, fired by HealthSouth seven months ago as details of the company's irregularities were made public, is the most prominent figure to be charged with wrongdoing since the string of accounting scandals began with Enron in October 2001.

Fourteen former HealthSouth
HLSH
executives -- including five chief financial officers who served under Scrushy -- have pleaded guilty to inflating the health-care giant's earnings by $2.7 billion to meet Wall Street targets.

Michael Martin, one former CFO, said that Scrushy instructed him to inflate the numbers. William Owens, the first CFO to plead guilty, told prosecutors that Scrushy also urged him to fix the numbers.

The Justice Department alleges HealthSouth often failed to meet its internal profit targets.

Scrushy is the first CEO to be held accountable by the Justice Department's corporate fraud task force for falsely vouching for the authenticity of his company's financial statements under the Sarbanes-Oxley Act.

The year-old statue, which Congress enacted after the wave of scandals, imposes harsh criminal penalties for lying to investors.

He will face an uphill battle in fighting the array of charges, legal experts predicted. "This is the mother of corporate CEO fraud indictments," said Jacob Frenkel, a former federal prosecutor and partner at Smith, Gambrell & Russell LLP in Washington.

Coercive techniques alleged

According to the indictment, Scrushy sought to control his co-conspirators through intimidation, threats, and installing equipment that allowed him to monitor their telephone conversations and e-mails.

He further obtained large compensation packages for his top executives and forgave company loans they had obtained to prevent them blowing the whistle. "Scrushy tried to buy their silence," Wray remarked.

Scrushy, who founded HealthSouth in the mid-1980s and built it into the largest operator of rehabilitative hospital centers, has denied any role in the fraud.

Last month, he told CBS' "60 Minutes" he is an "innocent" man and does not expect to go to jail. But just a few days later, he was hauled before a House oversight panel, where he invoked his Fifth Amendment right against self-incrimination and refused to answer questions.

Scrushy surrendered to federal marshals Tuesday morning and appeared before a federal magistrate judge in Birmingham.

At the prosecutors' request, Judge T. Michael Putnam set bail at $10 million and required Scrushy to wear an electronic monitoring ankle bracelet. He was expected to post bond and be released Tuesday.

Some of the items the Feds want to seize are his Birmingham mansion, a 92-foot "Chez Soiree" yacht, a 2003 Lamborghini sports car, a 2000 Rolls-Royce Corniche and a 2001 Cessna Citation 525 aircraft.

In May, a federal judge in Birmingham denied an SEC motion to indefinitely freeze Scrushy's assets, saying the government had failed to establish he was involved in the fraud.

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